NetVIX - A Network Volatility Index of Financial Markets

Daniel Felix Ahelegbey and Paolo Giudici

No 192, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: We construct a network volatility index (NetVIX) via market interconnectedness and volatilities to measure global market turbulence. The NetVIX multiplicatively decomposes into an average volatility and a network amplifier index. It also additively decomposes into marginal volatility indices for measuring individual contribution to global turmoil. We apply our measure to study the relationship between the interconnectedness among 20 major stock markets and global market risks over the last two decades. The NetVIX is shown to be a novel approach to measuring global market risk, and an alternative to the VIX. The result shows that during crisis periods, particularly the tech-bubble, sub-prime, and COVID-19 pandemic, the interconnectedness of the markets amplifies average market risk more than 700 percent to cause a global meltdown. We find evidence that the highest risk-contributing markets to global meltdown are the US, Brazil, Hong Kong, France, and Germany.

Keywords: Centrality; COVID-19; Financial Crises; NetVIX; Turbulence; VAR; VIX (search for similar items in EconPapers)
JEL-codes: C11 C15 C51 C52 C55 C58 G01 G12 (search for similar items in EconPapers)
Pages: 24
Date: 2020-09
New Economics Papers: this item is included in nep-net, nep-ore and nep-rmg
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: NetVIX — A network volatility index of financial markets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pav:demwpp:demwp0192

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